Australia and China push the ‘reset’ button on an important relationship


Tony Walker, La Trobe University

Australia can thank an erratic Donald Trump for the opportunity to “reset” its relationship with China after a chill engendered by what was interpreted as criticism from the then prime minister, Malcolm Turnbull, and foreign minister, Julie Bishop.

Turnbull had caused offence with his criticism of Chinese interference in Australian politics via Beijing’s front organisations. And in March 2017, Bishop had questioned China’s political model in a speech in Singapore.

A reset was already in the works before Turnbull was felled in August in a palace coup. The two countries had been reassessing shared interests in light of the wrecking ball US President Trump has taken to an international rules-based system.




Read more:
Morrison and Shorten reveal their positions on key foreign policy questions


Former treasurer and new Prime Minister Scott Morrison’s elevation of Marise Payne to replace Bishop provided a pretext for an important diplomatic engagement in Beijing in the lead-up to what is being called the “summit season”.

This interaction may well have happened anyway, but a changing of the guard in Canberra helped get over any “face issues” that might have lingered after fairly trenchant criticism of Australia in Chinese official mouthpiece publications.

Payne’s arrival in the Chinese capital ahead of an East Asia Summit in Singapore, an Asia Pacific Economic Cooperation (APEC) forum in Port Moresby, and a G20 summit in Buenos Aires this month is not a coincidence.

Her presence in Beijing for the fifth Australia-China Foreign and Strategic Dialogue is the first visit by an Australian foreign minister in nearly three years.

After putting Australia in the freezer, Beijing has enabled a thaw ahead of these important events at which America’s behaviour will be under scrutiny, if not censure.

Beijing’s emollient words at a meeting between Foreign Minister Wang Yi and Payne could have hardly contrasted more sharply with criticism expressed over the past several years as debate about foreign interference disrupted the relationship.

This is what Wang had to say about a reset:

We are ready to step up our strategic dialogue and deepen strategic cooperation … in particular, rebuild and cement our political mutual trust.

These are Chinese diplomatic buzzwords, with an emphasis on “mutual trust”.

Payne described her two hours of talks – which ran overtime – as a “full and candid discussion”. Australia and China had agreed on a “respectful relationship”.

Pointedly, Wang had referred to a “new government” in Canberra, as if to say that a change of management had enabled a thaw.




Read more:
The risks of a new Cold War between the US and China are real: here’s why


China’s conduct of its foreign policy, in which it alternately rewards and penalises those who fall out of favour, in some ways resembles a Beijing opera.

Melodrama is intrinsic to this Chinese art form.

China’s invitation to Payne for a long-delayed strategic dialogue is a calculated diplomatic move. It’s one that also suits Australia, anxious to gets its diplomatic relationship with China back on track.

It is in neither country’s interests – certainly not Australia’s – for an estrangement to persist at a time when uncertainty prevails due to an unpredictable American presidency.

Concerns in Beijing and Canberra about preserving open markets when American protectionism is threatening a liberalising trading environment have prompted this reset and determined its timing.

Beyond that, Canberra appears to have resolved that Australia’s interests are not well served by allowing an Australian security establishment possessed of a certain anti-China mindset to tilt policy in directions that do not serve the national interest.

It is one thing to exhibit scepticism about China’s behaviour and motivations. It is quite another to allow a “reds under the bed” mentality to drive policy.

No-one with more than passing knowledge believes China is a benign power. But nor is it the enemy. Its rise is a fact of life, whether Australian policymakers in thrall to a security establishment like it or not.

Interestingly, China sought to allay Australia’s concerns about its push into the southwest Pacific by offering “trilateral cooperation” in assisting Pacific island states build their infrastructure.

How this would work practically is not clear. But Wang appeared to be suggesting that Australia’s newly announced infrastructure fund for the Pacific could participate in joint projects with China’s Belt and Road Initiative.

Australia and China are not competitors, not rivals but cooperation partners, and we have agreed to combine and capitalise on our respective strengths to carry out trilateral cooperation involving Pacific Island states.

Significantly, Australia’s announcement on the eve of the Wang-Payne meeting that Canberra was blocking the takeover of the APA Group by Hong Kong’s CK Group on competition grounds was not an impediment to improving ties.

Pragmatism prevailed. “We hope a single case won’t affect Australia’s attitude to investment,” Wang said.

Payne’s visit took place against the background of overtures to China begun by Turnbull and Bishop in their efforts to restore certainty to the relationship.

A speech by Morrison to the Asia Society last week, in which he spoke of the importance of the Australia-China relationship, provided further impetus for a reset, propelled to a certain extent by Washington.The Conversation

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Morrison to unveil broad suite of measures to boost Australia’s influence in the Pacific


Michelle Grattan, University of Canberra

Scott Morrison on Thursday will announce an extensive suite of military, diplomatic, financial and people-to-people initiatives in a major boost to Australia’s role in the Pacific.

They include setting up a $2 billion infrastructure financing facility to promote development in the region.

The facility – coming hard on the heels of Labor proposing a government-backed infrastructure investment bank to assist the Pacific – would provide grant and loan financing for telecommunications, transport, energy, water and similar projects.




Read more:
Shorten proposes investment bank to help Pacific nations’ development


The military initiatives include an Australian Defence Force Pacific
Mobile Training Team and more naval deployments, while diplomatic
missions will be opened in Palau, the Marshall Islands, French Polynesia, Niue and the Cook Islands.

APEC focuses minds on Papua New Guinea

The Pacific push is against the background of China’s growing involvement in the area. But the government also points to issues of
potential instability in some countries, and the Islamic State terrorism threat in the broader Indo-Asia Pacific region.

The announcement comes ahead of the APEC meeting in Port Moresby on
November 17-18, and it follows Australia and Papua New Guinea agreeing
on a joint redevelopment of the naval base on Manus Island.

In Thursday’s speech at Lavarack base at Townsville, released ahead of
delivery, Morrison says: “My government is returning the Pacific to
where it should be – front and centre of Australia’s strategic outlook, foreign policy and personal connections, including at the highest levels of government”.

Morrison says it is time to “open a new chapter in relations with our
Pacific family”.

“Australia has an abiding interest in a Southwest Pacific that is secure strategically, stable economically and sovereign politically”.

The region is “where Australia can make the biggest difference in world affairs” – but too often had taken its influence for granted.

Defence to tie Australia to the Pacific

Morrison says that in future the Australian Defence Force, which already has a pivotal role, will play an even greater one with partner countries in training, capacity building, exercises and on “building interoperability to respond together to the security challenges we face”.

The proposed rotational ADF Pacific Mobile Training Team will be based in Australia, travelling to places in the Pacific, when invited, to undertake training and engagement with other forces.

Work with regional partners would be in areas such as disaster response, peacekeeping, infantry skills, engineering and logistics.

Morrison says the Navy will be deployed more to the Pacific to conduct
training and exercises with other countries. “This will enable them to
take advantage of the new Guardian Class Patrol Boats we are gifting
to them, to support regional security”.

Ties with Pacific police forces are to be strengthened, with a new Pacific faculty at the Australian Institute of Police Management that will help train future police leaders.

More regular in-person contact

To deepen people-to-people links with Pacific security forces, there
will be annual meetings of defence and police and border security
chiefs.

A security alumni network will be set up to maintain connections with
those who have taken part in the Defence Cooperation Program over
decades.

Military sporting engagements will be expanded, as will general
sporting links with a new sports program.

Announcing the new diplomatic posts, Morrison says “this will mean
Australia is represented in every member country of the Pacific Islands Forum”. He stresses also that the government wants “our best and brightest, young and experienced diplomats alike, working on the Pacific”.

As well as the infrastructure financing facility, Morrison is announcing that the government will seek parliamentary approval for Australia’s export financing agency, Efic, to have an extra $1 billion in callable capital and more flexibility to support investments in the region that benefit Australia’s national interest.

More investment in the Pacific

This would “enhance Efic’s ability to support Australian SMEs to be
active in the region. Private capital, entrepreneurialism and open
markets are crucial to our mutual prosperity,” Morrison says.

He says it is estimated the Pacific region will need US$3.1 billion
annually in investment to 2030.

Morrison says the government will work with Australia’s commercial media operators to enable people in Pacific countries to have “access to more quality Australian content on TV and other platforms.

“This will include lifestyle programs, news, current affairs, children’s content, drama and potentially sports. This is an initial step towards providing more Australian content that is highly valued by the Pacific community,” he says.

On 2GB Morrison on Wednesday had to defend Pacific countries from broadcaster Alan Jones’ attack on them as “rent seekers”.

Not rent-seekers after all

Jones lashed out after Morrison gave the importance of the Paris climate agreement to these countries as one reason for Australia not leaving the agreement.

“Do you think all these rent-seekers in the Pacific should get money that you’ve said you’re not going to contribute to Paris. … They’re
rent-seekers, they just want money,” Jones said.

Morrison replied: “I don’t think that’s very respectful to the Pacific
Islands, Alan, I really don’t, and I don’t share that view. They’re
part of the world in which we live here and we’ve always been doing
the right thing by them and we think back to Papua New Guinea, they
did the right thing by us when it came to our Diggers.

“So we have a very special relationship with the Pacific and we need to, for our own interest as well as that it’s part of the community and family of nations we live in in this part of the world. We do the right thing by them, they’ll do the right thing by us.”

Postscript: bid for gas piplines blocked

Treasurer Josh Frydenberg has effectively blocked a $13 billion bid by the Hong
Kong-based CK Group for the Australian gas pipeline company APA.

The decision complicates the current visit to China by Foreign
Minister Marise Payne.

Chinese approval for the Payne trip has been hailed as an important
sign of the improving relationship between the two countries after a
period of frostiness, which included tension over the federal
government’s legislation against foreign interference and the ongoing dispute over China’s build up in the South China Sea.

Foreign investment decisions rest with the treasurer, who takes advice
from the Foreign Investment Review Board. Frydenberg said he had
decided the proposed acquisition would be “contrary to the national
interest”

“It would result in an undue concentration of foreign ownership by a
single company group in our most significant gas transmission
business.”

Frydenberg said the board had been “unable to reach a unanimous
recommendation, expressing its concerns about aggregation and the
national interest implications of such a dominant foreign player in
the gas and electricity sectors over the longer term.”

His “preliminary decision” – which under the usual process will be
finalised a fortnight – reflected the size and significance of APA
Group. It was not a reflection on the CK Group, he said.

“The APA Group is a unique company, widely held amongst investors with
significant Australian ownership and management,” Frydenberg said.

“It is by far the largest gas transmission system owner in Australia,
owning 15,000 km of pipelines representing 56 per cent of Australia’s
gas pipeline transmission system, including 74 per cent of New South
Wales and Victorian pipelines and 64 per cent in the Northern
Territory.

“It also supplies gas for part of all mainland capital
cities’ consumption, gas-fired electricity generation assets and
liquefied natural gas exports.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Soft power goes hard: China’s economic interest in the Pacific comes with strings attached



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Red star rising: China has clear strategic designs on the Pacific Islands region.
Shutterstock

John Garrick, Charles Darwin University

China’s economic expansion into the Pacific Islands region raises critical questions for both the islands and Australia. What happens if infrastructure loans by Chinese banks and authorised state enterprises to vulnerable Pacific Island nations cannot be repaid? What consequences of default can be anticipated? Are there military dimensions?

The Pentagon has warned of the “potential military advantages” flowing from Chinese investments in other countries. China rejects this assertion. But if it does ever want access to foreign ports to support naval deployments in distant waters, it is laying the ground work to get it.

Belt and Road moves on the Pacific Islands

China’s grand plan to more closely link countries across Eurasia and the Indian Ocean through trade deals and infrastructure projects is known as the Silk Road Economic Belt and 21st Century Maritime Silk Road (“Belt and Road”). The plan includes Pacific pathways.



CC BY-ND




Read more:
The Belt and Road Initiative: China’s vision for globalisation, Beijing-style


Along with Australia and New Zealand, seven Pacific Islands nations officially recognise the People’s Republic of China (PRC). Another six recognise the Republic of China (Taiwan). China’s strategy is both to counter Taiwan’s influence and further its own interests. It wants Pacific nations to support it in international forums. Vanuatu, for example, was the first country to support China’s claims to island territory in the South China Sea disputed with the Philippines.



CC BY-ND

The number of Chinese companies operating in the Pacific region has greatly increased since Xi Jinping came to power in 2012. Trade between China and Pacific Island nations has ballooned to more than A$10 billion.

While its influence is still not as great as that of the US or even Australia, China’s growing investments cover mines, hydro-electricity projects, fishing, timber, real estate and services. Over the past decade it has also lavished the region with $US1.8 billion ($A2.4 billion) in foreign aid, including $US175,000 worth of quad bikes for Cook Island parliamentarians.

The soft power of money

China argues Chinese investment is “tactful” – that it helps developing nations build needed infrastructure with “no-strings-attached”. It contrasts this to Western aid models that require governance measures and other performance indicators to be in place in relation to aid funding.

But the credit Chinese state banks are extending to impoverished developing nations also looks a lot like a form of “debt colonialism”. The fear is that China is using the loans as leverage to expand its military footprint.




Read more:
Why China’s ‘debt-book diplomacy’ in the Pacific shouldn’t ring alarm bells just yet


The Chinese loans typically offer a period of grace before an interest rate of 2-3% over 15-20 years is imposed. In Tonga, for example, China deferred loan repayments for a period after the International Monetary Fund warned it was at risk of debt distress. Repayments started again in 2018, reportedly at a higher rate than before.

Sri Lankan lessons

If Tonga and other Pacific Island nations default, China can enforce contractual conditions as a pretext to advancing wider strategic aims.

This is precisely what happened in Sri Lanka.

The Sri Lankan government had high hopes for the Hambantota Port Development Project, built by China Harbour Engineering Company, one of Beijing’s largest state-owned enterprises, and mostly funded by the state-owned Export–Import Bank of China. When the port failed to generate anticipated revenues, the government ended up owing China at least $US3 billion with no means to pay.

The Chinese then demanded a Chinese company take a dominant equity share in the port. The Sri Lankan government was also forced of hand over 15,000 acres of land around the port for 99 years.

Now China owns an Indian Ocean port strategically placed on one of the busiest shipping routes in the world.

Pacific interests

China has clear military interests in the Pacific. In 2014 Xi Jinping personally visited Fiji to sign memorandums of understanding including for greater military cooperation.

Australian intelligence sources allege China has been secretly negotiating to build a military base in Vanuatu. Both nations deny this. Such a base would give China a foothold for operations to coerce Australia and outflank the US and its base on Guam.

China’s “soft power” is being better resourced to influence foreign nations.
Its moves in the Pacific means the geopolitics of the region are hardening up.




Read more:
Fears about China’s influence are a rerun of attitudes to Japan 80 years ago


Globally, China’s rise has profound implications for international law and trade.

China naturally prefers bilateral relationships to leverage its power and advance its interests. It has steered away from multilateral dispute resolution, especially since the South China Sea arbitration, which ruled unanimously in favour of the Philippines. It has simply ignored the verdict and gone ahead turning the disputed rocky shoals into military outposts.

If China can ignore the legitimate claims of the Philippines, it can ignore the rights of the smaller and more fragile Pacific Island nations. Its actions flag its challenge to the international order Australia has long championed – one based on rule of law and political and economic liberalism.

Its influence is unlikely to promote democratic principles. Those holding those principles dear need to help the Pacific Island nations resist the lure of soft-power “incentives” promised with no strings attached.

There are definitely strings attached.The Conversation

John Garrick, Senior Lecturer, Business Law, Charles Darwin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

All eyes on November’s G20 meeting as tensions between China and the US ratchet up



File 20181014 109233 1xrgd0z.jpg?ixlib=rb 1.1
Much attention will be on the next meeting between Chinese President Xi Jinping and US President Donald Trump at the G20 in late November.
AAP/EPA/Roman Pilipey

Tony Walker, La Trobe University

When G20 finance ministers met in Bali last week to review economic developments in the lead-up to the annual G20 summit, they could not ignore troubling signs in the global economy driven by concerns about an intensifying US-China trade conflict.

Last week’s slide in equities markets will have served as a warning – if that was needed – of the risks of a trade conflict undermining confidence more generally.

China’s own Shanghai index is down nearly 30% this year. This is partly due to concerns about a trade disruption becoming an all-out trade war.




Read more:
The risks of a new Cold War between the US and China are real: here’s why


IMF Managing Director Christine Lagarde’s call on G20 participants to “de-escalate” trade tensions or risk a further drag on global economic growth might have resonated among her listeners in Bali, but it is not clear calls to reason are getting much traction in Washington these days.

Uncertainties caused by a disrupted trading environment are already having an impact on global growth. In its latest World Economic Outlook, the IMF revised growth down to 3.7% from 3.9% for 2018-19, 0.2 percentage points lower than forecast in April.

IMF Managing Director Christine Lagarde has called on G20 members to
AAP/EPA/Made Nagi

The IMF is predicting slower growth for the Australian economy, down from a projected 2.9% this year to 2.8% next year. The May federal budget projected growth of 3% for 2018-19 and the following year.

Adding to trade and other tensions between the US and China are the issues of currency valuations, and a Chinese trade surplus.

In September, China’s trade surplus with the US ballooned to a record U$34.1 billion.

This comes amid persistent US complaints that Beijing has fostered a depreciation of the Yuan by about 10% this year to boost exports, which China denies.

These are perilous times in a global market in which the US appears to have shunned its traditional leadership role in favour of an internally-focused “America First” strategy.

So far, fallout from an increasingly contentious relationship between Washington and Beijing has been contained, but a near collision earlier this month between US and Chinese warships in the South China sea reminds us accidents can happen.

This is the background to a meeting at the G20 summit in Buenos Aires late in November between US President Donald Trump and Chinese President Xi Jinping. That encounter is assuming greater significance as a list of grievances between the two countries expands.

US Vice President Mike Pence’s speech last week to the conservative Hudson Institute invited this question when he accused of China of “malign” intent towards the US.

Are we seeing the beginning of a new cold war?

The short answer is not necessarily. However, a further deterioration in relations could take on some of the characteristics of a cold war, in which collaboration between Washington and Beijing on issues like North Korea becomes more difficult.

By any standards, Pence’s remarks about China were surprising. He suggested, for example, that Chinese meddling in American internal affairs was more serious than Russia’s interventions in the 2016 president campaign.

He accused Beijing of seeking to harm Republican prospects in mid-term congressional elections and Trump’s 2020 re-election bid. This was a reference to China having taken its campaign against US tariffs to newspaper ads in farm states like Iowa.

Soybean exports to China have been hit hard by retaliatory tariff measures applied by Beijing in response to a first round of tariffs levied by the US.

“China wants a different American president,” Pence said.

This is probably true, but it could also be said that much of the rest of the world – not to mention half of the US population – would like a different American president.

All this unsteadiness – and talk of a “new cold war” – is forcing an extensive debate about how to manage relations with the US and China in a disrupted environment that seems likely to become more, not less, challenging.

Australian academic debate, including contributions from various “think tanks”, has tended to focus on the defence implications of tensions in the South China Sea for Australia’s alliance relationship with the US.

This debate has narrowed the focus of Australia’s concerns to those relating to America’s ability – or willingness – to balance China’s regional assertiveness.

This assertiveness increasingly is finding an expression in China’s activities in the south-west Pacific, where Chinese chequebook – or “debt-trap” – diplomacy is being wielded to build political influence.

Australian policymakers have been slow to respond to China’s push into what has been regarded as Australia’s own sphere of influence.




Read more:
Despite strong words, the US has few options left to reverse China’s gains in the South China Sea


Leaving aside narrowly-focused Australian perspectives, it might be useful to get an American view on the overarching challenges facing the US and its allies in their attempts to manage China’s seemingly inexorable rise.

Among American China specialists, few have the academic background and real-time government experience to match that of Jeffrey Bader, who served as President Barack Obama special assistant for national security affairs from 2009-2011.

In a monograph for the Brookings Institution published in September, Bader poses a question that becomes more pertinent in view of Pence’s intervention. He writes:

Ever since President Richard Nixon opened the door to China in 1972, it has been axiomatic that extensive interaction and engagement with Beijing has been in the US national interest.

The decisive question we face today is, should such broad-based interaction be continued in a new era of increasing rivalry, or should it be abandoned or radically altered?

The starkness of choices offered by Bader is striking. These are questions that would not have entered the public discourse as recently as a few months ago.

He cites a host of reasons why America and its allies should be disquieted by developments in China. These include its mercantilist trade policies and its failure to liberalise politically in the three decades since the Tiananmen protests.

However, the costs of distancing would far outweigh the benefits of engagement to no-one’s advantage, least of all American allies like Japan, India and Australia.

None of these countries, in Bader’s words, would risk economic ties with China nor join in a “perverse struggle to re-erect the ‘bamboo curtain’… We will be on our own”. He concludes:

American should reflect on what a world would be like in which the two largest powers are disengaged then isolated from, and ultimately hostile to each other – for disengagement is almost certain to turn out to be a way station on the road to hostility, he concludes.

Bader has been accused of proffering a “straw man argument’’ on grounds that the administration is feeling its way towards a more robust policy, and not one of disengagement. But his basic point is valid that Trump administration policies represent a departure from the norm.




Read more:
Response to rumours of a Chinese military base in Vanuatu speaks volumes about Australian foreign policy


At the conclusion of the IMF/World Bank meetings in Bali, Christine Lagarde added to her earlier warnings of “choppy” waters in the global economy stemming from trade tensions and further financial tightening. She said:

There are risks out there in the system and we need to be mindful of that…bIt’s time to buckle up.

That would seem to be an understatement, given the unsteadiness in the US-China relationship and global geopolitical strains more generally.The Conversation

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

World politics explainer: Deng Xiaoping’s rise to power



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Chinese stamps commemorating Deng Xiaoping, a leader widely regarded to have modernised the country and made it a formidable economic power, 1998.
Shutterstock

James Laurenceson, University of Technology Sydney

This article is part of our series of explainers on key moments in the past 100 years of world political history. In it, our authors examine how and why an event unfolded, its impact at the time, and its relevance to politics today.


By orchestrating China’s transition to a market economy, Deng Xiaoping has left a lasting legacy on China and the world.

After becoming the leader of the Communist Party of China in 1978, following Mao Zedong’s death two years earlier, Deng launched a program of reform that ultimately saw China become the world’s largest economy in terms of its purchasing power in 2014.

Last year it accounted for 18.2% of total global purchasing power, compared with 15.3% for the United States.

What happened?

A major turning point was the 3rd Plenum of the 11th Central Committee of the Communist Party of China, which took place in December 1978. For the three decades prior, production in China was structured around a central planning model: collectivised agriculture in rural areas and state-owned industrial firms (SOEs) in urban regions. The prices of goods and services were also fixed by the government rather than determined by supply and demand.

Deng recognised that the outcomes produced by the planned economy were poor, with more than 60% of the population living in poverty. That’s why he launched a series of measures such as opening up the economy to foreign trade and investment.

He summarised his distinctly pragmatic rather than ideological approach to development with the phrase, “It doesn’t matter whether the cat is black or white, so long as it catches mice”.

Under Deng, the market wasn’t given free rein immediately. There was no reform of the “big bang” variety seen in former centrally-planned economies of Central and Eastern Europe.

Rather, in the words of Barry Naughton, China’s economy was simply allowed to “grow out of the plan”.

For example, state-owned firms were not sold off to private entrepreneurs at the outset. Rather, privately-owned companies were permitted to emerge alongside SOEs. This gave Chinese consumers choices and the competition forced SOEs to become more responsive to market demand and efficient in their production practices.

The impact of the reforms

The outcomes of Deng’s reforms have been without historical peer.

Deng Xiaoping billboard stating
Wikicommons/Brücke-Osteuropa

The latest data put the proportion of China’s population living in poverty at less than 1%. Of course, despite hundreds of millions being lifted out of poverty, this does not mean that all Chinese are rich: average incomes are still only around one-third of those in Australia.

The reasons Deng’s reforms proved successful can be traced back to two key factors.

The first is policy logic.

John McMillan and Barry Naughton showed that the newly-emerged private sector played a crucial role in improving the Chinese economy’s overall efficiency.

Another key consideration was that China benefited from its starting point.

Jeffrey Sachs and Wing Thye Woo pointed out that in 1978, most Chinese people were poor and living in rural areas. Compared with other centrally-planned economies such as the former Soviet Union, this made the task of shifting labour from producing low-productivity agricultural output to higher productivity industrial goods easier.

Just how far along the path to a market economy has China come?

That depends on the measure and the part of China’s economy under focus.

Last month, Meixin Pei, a professor at Claremont McKenna College in the United States, pointed to China’s state sector as evidence its economic growth would slow. He wrote that China’s economy was “nowhere near as efficient as that of the US”. And the “main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment”.

Yet, perhaps unwittingly, Pei makes an important observation. SOEs may account for one-fifth of China’s value-added output and employment. But that means four-fifths now comes from Deng’s private sector.

Contemporary relevance

Careful work by Nicholas Lardy at the Peterson Institute for International Economics has concluded that by 2011, China’s public sector, including SOEs, only employed 11% of China’s labour force. As a comparison, in 2013, Australia’s public sector accounted for 18.4% of total employment. In other words, at an aggregate level and in terms of employment, the private sector is more prominent in China than in Australia.

An OECD study in 2010 found that 87% of China’s 523 industrial sectors were highly competitive. They observed that this compared favourably with international standards, including with the US.

Commentators like Minxin Pei are correct that China’s SOEs do benefit from government policy support, such as cheap loans from state-owned banks.

But the data nonetheless point to China’s private sector being hyper-competitive in the sense that despite such discriminatory policies, the sector as a whole has continued to thrive.

In a 2016 paper for a Reserve Bank of Australia conference, Nicholas Lardy highlighted that in terms of output growth, profitability and indebtedness, private Chinese industrial firms outperform SOEs by a wide margin.

The prominent and vibrant role the private sector plays in China today means that its economic growth may be more sustainable than some of its critics imagine.

That said, the pace of economic reform has slowed under current Chinese leader, Xi Jinping, who took over in 2012.

Arguably the slowdown dates back even further. For example, in terms of subjecting Chinese firms to increased competition from overseas firms, China’s trade-weighted average tariff in 2000 stood at 14.7%. After entering the World Trade Organisation (WTO) in 2001, this fell dramatically to 4.7% by 2005. Since then, no further progress has been made. In fact, in 2016 the figure was higher at 5.2%.

Similarly, four decades after Deng began to allow foreign investment into the manufacturing sector, other parts of China’s economy, particularly the so-called “commanding heights” of the economy such as energy, telecommunication and finance, remain curtailed or off limits entirely. Overall, China is less open to foreign investment than high-income countries and many emerging markets as well.

This lack of reciprocity is at least partly responsible for much of the international community’s criticisms of China’s economy today. Jason Young, the Director of the New Zealand Contemporary China Research Centre wrote last week that the current US-China trade war is really a “dispute over what models of political economy are deemed fair and legitimate economic policy-making in today’s highly-integrated global economy”.

Over the past decade, around one-third of the world’s economic growth has emanated from China. Countries like Australia have been leading beneficiaries, with China buying $116 billion last year.

China’s economic growth, and therefore the world’s, will be more assured if Deng’s reform legacy is reclaimed by China’s current crop of leaders. Just announced tariffs cuts and new openings for foreign investment are steps in that direction.The Conversation

James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The risks of a new Cold War between the US and China are real: here’s why



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The US and China find it extremely difficult to see the world from the other’s perspective.
AAP/EPA/Roman Pilipey

Nick Bisley, La Trobe University

Donald Trump is making good on his trade war rhetoric with China, announcing tariffs on a further US$200 billion worth of goods from the PRC. As China promises retaliation, the warmth of the Mar-a-Lago summit of April 2017 is a thing of the past. When this is added to the wide-ranging tensions such as the disputes over barely habitable rocks in the East China Sea, tensions over the competing claims in the South China Sea, and the spectre of nuclear catastrophe on the Korean Peninsula, the sense of geopolitical risk is as palpable as it is frightening.

During such periods of turbulence, it is not surprising that scholars and commentators look to the past for parallels to current crises. Not long ago, the trend, prompted by the centenary of the outbreak of the first world war, was to see Asia on the cusp of 1914-like conflagration. This proved a highly imperfect point of comparison.

Today, a more common refrain is that Asia is on the cusp of a new Cold War. If it were to happen, it would mean the rivalry that has been growing is transformed into overt militarised competition that drags the region into its vortex.

In this case, the US is confronted not by an expansionary Soviet Union seeking to capitalise on decolonisation to advance its ideological and geopolitical ambition, but by a resurgent China. Its ambitious president, Xi Jinping, has clearly set out his aim to make China the world’s preeminent national power.

Until very recently, it seemed unlikely that a Cold War with 21st century characteristics would eventuate. The USSR and United States inhabited almost entirely separate economic universes during the Cold War.

This meant the dynamic of competition was driven by power politics and ideology alone – the tempering effect of shared economic interests simply didn’t exist. Today, so the argument goes, their economic interdependence is a powerful brake on the worst instincts of the two countries.

While China and the US are in competition, the two countries have also established an extensive range of bilateral mechanisms to manage their complex relationship. There are around 1000 meetings between the countries every year, ranging from summit level down to mid ranking officials, covering issues from trade and investment to coastguard and fisheries.

The two countries know they have to work hard to ensure the competitive dynamic does not spiral out of control. And of course, both sides’ nuclear weapons act as a great disciplining force, ensuring even the most heated of relationships can remain short of outright conflict. Asia also has a wide array of institutional mechanisms such as ASEAN and the East Asia Summit that regularly discuss their common concerns and build a sense of regional trust.

Yet, in spite of their many meetings, in which there is much discussion but little agreement, there are good reasons to think a Cold War 2.0 might be a good deal closer than we realise. The US and China are plainly entering into a period of significant geopolitical rivalry. Each has ambitions that are mutually incompatible. Beijing wants a south-east Asian region in which it is not beholden to US primacy, while Washington wants to sustain its regional dominance.

The two also find it extremely difficult to see the world from the other’s perspective. Washington does not seem able to grasp that even though Beijing benefited from US primacy in the region, it will not forever accept a price-taker’s position in the regional order.

For its part, Beijing simply does not believe Washington’s claim that it wants China to achieve its potential, and that this can occur without meaningful changes to the current international order. When that is added to the nationalism that is a powerful political force in both countries, the prospects of a bleak geopolitical future seem very real.

The trade war escalation is one of the most worrying developments. Not only does it signal a more turbulent and less dynamic period in the global economy, it represents the victory of nationalist politics over shared economic interests. More importantly, it may presage a return to a less integrated global economy.

Trump evidently wants to rip up global supply chains and turn back the clock to the days of mercantilist approaches to economic development. Most worryingly, due to China’s behaviour in the past — stealing IP, predatory approaches to foreign investment and refusing access to its vast markets — Trump’s tariffs have a surprising level of support in business circles in the US.

The risk is not only one of sustained tension between the world’s biggest economies, but significant division between the interests of the two most important countries. If the golden straitjacket of economic interdependence is gone, the prospects of geopolitics and nationalism winning the day are significantly enhanced. China also sees in the tariffs a confirmation of its long-held suspicion that the US is intent on keeping the country from fulfilling its potential.

Worryingly, there is widespread complacency in the region. We used to think great power politics had been banished by globalisation. We were wrong. We thought Trump would come to his economic sense when elected. Wrong again. And now the escalation of trade conflict is undermining the most important link between the US and China – their shared economic interests.

We must not fool ourselves again. High intensity geopolitical competition is increasingly likely. Unless the US and China can step down from the escalatory cycle they are on, we are sliding into another period in which great power rivalry, militarised competition and dangerous nationalism once again dominate the region.The Conversation

Nick Bisley, Head of Humanities and Social Sciences and Professor of International Relations at La Trobe University, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Trump versus China means picking sides



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If the trade war with China escalates, siding with the US is going to cost, but Australia’s long-term national interests still lie with it.
Shutterstock

Giovanni Di Lieto, Monash University

As Donald Trump escalates his trade war with China, slapping a 10% tariff on roughly $US200 billion of imports that will climb to 25% if China retaliates, he appears to found something of a soul mate in Scott Morrison.

“We both get it,” Australia’s new prime minister said this week. What they get, he told the New York Times’ Maureen Dowd, is that some people feel left off the globalism gravy train: “The president gets that. I get it.”

His words signal a profound change of tack in Australian economic diplomacy as the new US approach threatens to break down the World Trade Organisation and universal trade agreements in general.

Under Trump, trade will depend on stronger bilateral (one on one) agreements that support US geopolitics.

It’ll mean Australia picking sides.

Double dangers in middle of the road

The status quo of relying on China for trade surpluses and on the US for security patronage might not be sustainable in the long run.

Siding with neither China or the US, attempting a “third way” of non-alignment, runs the risks losing out on both trade and security.

Broadly speaking, we can summarise the trade war between the US and China as a contest between sea and land.

The US aims to secure trade routes through the Indian and Pacific oceans. China wants to shift the bedrock of international trade to Central Asia.

Its Belt and Road Initiative is a grand strategic plan to join Eurasian economies from Lisbon to Vladivostok. The plan would end the historic era of Anglo-American hegemony founded on controlling trade routes across the Atlantic, Indian and Pacific oceans.




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Australia faces an existential strategic choice.

Leaving political ideologies aside, its economic prosperity depends on trade by sea. The return of Marco Polo’s world would eventually make Australia little more than a price-taking commodity supplier to trade and investment hubs from Beijing to Venice.

This means our national interests lie with the US defence of its seaborne trading routes.

Picking a side will be costly

In the short term, especially if the trade war escalates, siding with the US will be costly. We could lose a good deal of China-related export and business opportunities. Over the longer run we could offset the losses by diversifying to trade and invest in countries with shared strategic interests, such as Indonesia and India.

We would be well advised to reconsider the diplomatic benefit of RCEP, the China-led Regional Comprehensive Economic Partnership. This mega regional trade deal between the 10 members of the Association of Southeast Asian Nations and their bilateral trade partners has been dubbed the Chinese Trans Pacific Partnership. It can be seen as an extension of Xi Jinping’s major-power agenda.

After a promising start, RCEP negotiations now appear to be stuck. The main obstacle is India’s fear of worsening its already significant trade deficit with China.

Our interests lie with the US, and India

Another sticking point is that India, the Philippines and other potential members want countries like Australia, New Zealand and Japan to open up their markets for information technology and professional services.

In pure trade terms we would lose little if the RCEP did not proceed. We already have strong bilateral ties with all the negotiating countries apart from India, with whom we are presently negotiating a free trade agreement.

We would be well advised to use our limited diplomatic resources for that and supporting the US when it comes time to pick sides.The Conversation

Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Turnbull pushes the ‘reset’ button with China, but will it be enough?



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In a recent speech, Prime Minister Malcolm Turnbull attempted to reset Australia’s relationship with China, which has become strained in recent months.
AAP/EPA/Kanzaburo Fukuhara / POOL

Tony Walker, La Trobe University

Prime Minister Malcolm Turnbull’s so-called “China reset” should be viewed for what it is. That is, neither a self-criticism of mistakes made in managing the China relationship, nor necessarily a self-confident assertion of Australia’s foreign policy priorities.

For all intents and purposes, Turnbull’s speech at the University of New South Wales last week was an exercise in damage limitation, as he trod lightly over vexed issues in relations with Beijing.




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Among the motherhood statements about contributions Chinese-Australians have made to the greater good was a key passage in which Turnbull emphasised a common interest in “free trade and open markets in every part of the world”. He said:

So in the midst of this rapid change, Australia continues to address its own interests by pursuing a relationship with China based on mutual respect and understanding. For our part, we act to advance Australia’s prosperity, ensure independence of our decision-making, and secure the safety and freedom of our people.

After this summation of the national interest, Turnbull reproduced a quote from Chinese President Xi Jinping to the Australian parliament in 2014, long before any thought of a disruptive Donald Trump presidency had materialised. At the time, Xi said:

The United Nations Charter and the basic norms governing international relations should apply to all countries. With that, countries big or small, strong or weak, rich or poor, are all equal. This means not only equal rights and interests for all countries, but also equality of all countries before international rules.

In doing so, Turnbull sought both to assert Australia’s sovereignty in pursuit of its own interests, and also to remind Xi of China’s commitment to a “rules-based” international order.

This was diplomacy at work, prompted by a realisation that relations with Australia’s cornerstone trading partner have become strained – due partly to Turnbull’s own clumsiness, which I will come to later. His mission on this occasion was to unstrain them.

Beijing has put Canberra in a freeze for the past year or so over statements by both Turnbull and Foreign Minister Julie Bishop that were regarded as unhelpful. China took particular exception to a Bishop speech in which she criticised its political model.

Bishop herself has not been to China for two years. As a consequence, relations are perceived to be drifting or, worse still, in a state of disrepair.

Judging by Beijing’s mild response to Turnbull’s speech via a foreign ministry spokesperson – and the presence in the audience at UNSW of China’s ambassador to Australia and its consul-general in Sydney – the prime minister achieved part of his objective.

This was Australian statecraft at work, driven not by China hawks in Canberra, or advisers who are jaundiced where Beijing is concerned, but by realpolitik.

In other words, no purpose would be served by a continued freeze in relations with Beijing, notwithstanding real policy concerns about Chinese assertiveness in both the South China Sea, and in Australia’s own southwest Pacific sphere of influence.

Turnbull had yielded to diplomatic advice to separate domestic politics from foreign policy, as if such advice should have been necessary.

Department of Foreign Affairs and Trade advisers, led by the Chinese-speaking head of DFAT, Frances Adamson, had secured a “battle victory not a strategic victory”, in the words of a prominent Canberra China-watcher.

Why is a reset needed?

In all of this, the question might reasonably be asked: how did Australia manage to aggrieve its cornerstone trading partner in the first place?

The answer to that question lies partly in Turnbull’s own poor political judgement.

The prime minister makes much of his China experience as a merchant banker seeking to do deals on the frontier of that country’s economic emergence in the 1980s.

On the evidence, Turnbull still has a bit to learn about dealing with China, including the importance of nuance. The Chinese are masters of diplomatic subtleties – unless it suits them to be otherwise.

Turnbull’s error was to frame Australia’s foreign interference laws – aimed at limiting the ability of foreign entities to intrude into Australian domestic politics – in such a way that his public statements caused unnecessary offence in Beijing.

While these laws clearly had China’s state propaganda apparatus and Chinese money in mind, there was no need for Turnbull to rub it in. And yet rub it in he did.

In a surprising display of ineptitude between December 7 and December 9 last year, he said on three separate occasions Australia had “stood up” against outside attempts to interfere in its internal affairs.

On the last occasion, he said it in his own version of Chinese. Such phraseology – “the Chinese people have stood up” – has sacred meaning in China. This was the expression attributed to Mao Zedong when proclaiming the People’s Republic in 1949 after decades of foreign interference, including unspeakable crimes by the Japanese.

It might also be observed that China is not the only country that seeks to influence Australian domestic politics via its various agencies and an active diaspora. Hardly less assiduous in its attempts to exert pressure on an Australian political process is the State of Israel, via its own government and semi-government apparatuses and an assertive domestic lobby.

Complications arise when activities cross a boundary between the legitimate exercise of soft power and attempts to corrupt the political process, or resort to forms of intimidation.

Where to from here?

There is no doubt that managing relations with China is challenging, especially at a time when Beijing is constantly testing the limits of what is acceptable in ruthless pursuit of its interests.

A mercantilist China will seek to get away with what it can.

That said, Australia has no choice but to strive to get the balance right in dealing with a rising power whose trajectory is such that by mid-century, or sooner, it will have the world’s largest economy and a military capability that will enable it to project power far beyond its shores.

Turnbull’s early priority should be to restart bilateral interactions at senior level, including a Beijing visit before the year is out either by himself or by Bishop.

Where Turnbull was on firmer ground in his UNSW speech was in the emphasis he laid on shared interests with China on free trade and open markets. Leaving aside Chinese mercantilism in which it invariably seeks to tilt the trade environment in its favour, Turnbull identified what is clearly a common interest, and one that needs to be exploited.




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This is resistance to the sort of trade bluster emanating from Washington in which the Trump administration seems bent on disrupting an international trading environment that is being run ragged by capricious policymaking. Turnbull said:

When it comes to trade, we should never forget that protectionism is self-defeating, not a ladder to get you out of the low growth trap, but a shovel to dig it deeper… In trade, there will always be more winners, more growth and more jobs, on a level playing field.

The ConversationIn the end, relations with China can be likened to a long march, in which each step along the way needs to be taken with care – or as Deng Xiaoping might have advised: Cross the river by feeling the stones.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.

Why Trump’s liberal demolition job and authoritarian outreach is about China


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US President Donald Trump has been reaching out to totalitarian leaders such as North Korea’s Kim Jong-un while snubbing traditional allies.
AAP, CC BY-SA

Reuben Steff, University of Waikato

It is obvious that US President Donald Trump is comfortable engaging with dictators and even US adversaries.

In contrast, he displays indifference – if not hostility – towards the liberal rules-based order that has served US interests since World War II. Issues like human rights, trade, climate change, and even America’s democratic allies have all been criticised or undermined by the president during his time in office.




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The general explanation for the president’s behaviour is that it stems from his personality. He seems to see something he respects in “strongmen”, whether it is Duterte, Putin, Xi, Erdogan or Kim.

But is the explanation that simple or is there something else at work? Is there a strategy that, President Trump and his allies believe, serves America’s geopolitical interests? If there is, it’s about China.

America’s ideological problem

Consider that there are a number of states throughout the Asia-Pacific and across Eurasia that may soon be “up for grabs” as US-China tensions escalate and states hedge their position. Clearly, Washington wants as many states as possible to maintain their strategic distance from Beijing and lean towards the US. This is a task that will become more difficult as China’s power continues to rise and America finds it harder to reassure its allies that it can maintain its dominance in the region.

A number of these states have authoritarian governance systems, forms of illiberal democracy or may be trending in this direction. They do not share America’s governing liberal ideology. This ideological difference could complicate America’s efforts to keep these states out of China’s orbit, which claims to have no interest in the domestic affairs of other states.




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US foreign policy since the end of the Cold War cannot have reassured authoritarian and illiberal states that Washington’s ideological values play only a minor role in it. US foreign policy, at times, has looked like that of a revolutionary power intent on transforming the international system in its own image. After all, the Bush administration appeared to believe that the only way for the world to be safe was for liberalism and democracy to triumph everywhere, which could usher in a global democratic peace. This is an assumption with some empirical support.

Furthermore, the immense power of the US may have made it difficult for non-liberal states to feel assured that even if they complied with US demands to give up their weapons of mass destruction (which they perceive as a critical deterrent to US intervention), they might still face further requests and threats. As Libya’s dictator Muammar Gaddafi found out in 2011, even a regime change can be a consequence.

Addressing a disadvantage

So how does all this tie back to America’s competition with China for the allegiance of states across the world? What could encourage authoritarian and illiberal states, in particular, to lean towards China in the years to come and accelerate the emergence of a bipolar US-China system?

Firstly, America’s power provides it with immense discretion to act and the capacity to undermine and enact regime change against illiberal states. Since 2003, we’ve seen this in Iraq, Afghanistan and Libya. Secondly, it is US ideology, and their fears that US power will be used for ideological ends – that is, to militarily intervene against illiberal states to try replace their regimes with liberal ones. The first point can generate concern all on its own but it’s further magnified by the second point.

To illiberal states, US liberalism has compelled Washington in the past to go abroad “in search of monsters to destroy” – and they are the ideological “monsters”.

Therefore, a case can be made that if the US credibly communicates that it is not motivated by liberal impulses, it will reduce these ideational concerns. It will increase (by how much is debateable) incentives for states to lean towards the US. Thus, American liberalism, rather than being seen as a source of strength, could leave the US disadvantaged as China’s power rises.

Trump’s challenge to the liberal order

Trump’s recent behaviour towards the G7 is consistent with this. It further communicates the point to authoritarian and illiberal states that this administration does not care about a state’s ideological stripes. This approach even gives President Trump more room to manoeuvre to attempt his own “Nixon to China” initiatives towards Moscow (if he can overcome domestic opposition) and Pyongyang.

Rapprochement with North Korea could reunify the Korean peninsula in a way that benefits the US at China’s expense (as well as eliminating a nuclear threat). With respect to Russia, it could stop Moscow’s drift towards China, and eliminate the prospects of Eurasia coming under the effective domination of a China-Russia led de facto alliance. Removing liberal ideology from the picture removes one roadblock towards these geopolitical initiatives.

The Trump administration appears to believe there is little material costs to adopting this approach. America’s traditional liberal allies lack the will to pay for their own defence and thus cannot constitute a true challenge to US global power. They can issue rhetoric and voice their opposition to US foreign policy but President Trump, rightly or wrongly, does not view these as meaningful forms of influence.

The ConversationUltimately, to the US president, liberalism is an ideology with no clear foreign policy benefit. To him it is one that could, at worst, act to drive states towards China, accelerating the emergence of a bipolar world order. This is one consistent element of the president’s strategy. The faster we reconcile ourselves to this, the quicker we will be able to grapple with the implications his foreign policy has for the existent liberal international order.

Reuben Steff, Lecturer in International Relations and Security Studies, University of Waikato

This article was originally published on The Conversation. Read the original article.

What’s driving Chinese infrastructure investment overseas and how can we make the most of it?


Shahar Hameiri, The University of Queensland

Chinese infrastructure investment in Australia has rarely left the headlines lately. It’s reported that telecommunications giant Huawei will likely be banned from building Australia’s 5G network on national security grounds. Hong Kong-based company CK Infrastructure’s bid to buy APA Group’s gas pipeline network is also proving controversial.

Scrutiny of the national security implications of infrastructure has been upgraded. The new Critical Infrastructure Centre is assisting the Foreign Investment Review Board in this. Though not made explicit, the main focus is China.




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Greater scrutiny of investment projects is welcome, especially if community and environmental concerns are also considered. However, Australia could benefit from the availability of Chinese infrastructure financing.

Australia’s north has significant infrastructure needs. And in the major Australian cities, public transport systems are inadequate, leading to ever-longer commuting times. China also possesses world-class expertise in high-speed rail, which could be harnessed to better connect cities on the eastern seaboard.

Given the state of relations with China and Australia’s pressing infrastructure needs, the Australian government must develop a clear strategy for Chinese infrastructure investment. Instead of passively scrutinising bids, the government should proactively identify worthwhile projects and engage Chinese counterparts to finance and implement them.




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Belt and Road isn’t just a political ploy

A proactive approach could benefit Australia because Chinese infrastructure investment is not as strategically directed as many assume. This is clear if we examine the Belt and Road Initiative (BRI) – the centrepiece of China’s global infrastructure financing spree.

The Australian government, on security officials’ advice, has not joined the BRI. However, Belt and Road is not a carefully planned “grand strategy”. It is largely driven by the diverse activities of state-owned enterprises competing for projects and financing.

President Xi Jinping has undoubtedly used the BRI to signal China’s rise to “great power” status. But its main drivers are domestic and commercial. At its core, the BRI is an effort to alleviate China’s industrial overcapacity problem in key sectors, such as steel, glass, cement and aluminium.

Overcapacity has worsened since the global financial crisis, as Beijing sought to maintain growth by encouraging an infrastructure construction boom. State-owned enterprises (SOEs) spearheaded this. After profitable domestic opportunities had dried up, international expansion became attractive, to keep SOEs working and to find more productive outlets for China’s huge foreign currency reserves.




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The BRI’s implementation has reflected competition, lobbying and compromises among ministries, provinces and SOEs. Its masterplan document – “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road” – is a case in point. It contains 50 “priority areas”. These cover virtually every governmental and non-governmental activity, showing little actual prioritisation.

Early statements suggested a BRI focus on Central and Southeast Asia. But since 2015 the initiative has been formally opened to all countries. This was again due to intense lobbying from provinces, SOEs and some foreign governments. All are keen to get some of the action, suggesting little strategic direction.

The vague and loose Belt and Road plan has enabled considerable scope for interests within the Chinese party-state to use it for their own, economically motivated, agendas, with little consideration for Beijing’s wider diplomatic objectives. This has generated a rather chaotic, “bottom-up” process for selecting and funding projects.

Belt and Road project ideas usually emerge from state-owned enterprises’ in-country subsidiaries. After spotting an opportunity, they try to build support in the recipient government. Occasionally, this includes bribing officials. They also often seek to obtain the local Chinese embassy’s support to improve lobbying back home.

Once agreement with the recipient government is reached, the SOE or the recipient government applies for financing from China’s policy or commercial banks. The banks determine whether to extend credit after assessing repayment capacity. The central government’s involvement is typically limited to the National Development and Reform Commission’s formal approval.




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Australia still needs to manage the risks

Chinese infrastructure projects are not risk-free. The potential for misuse of key infrastructure to serve Chinese strategic agendas is clearly the Australian government’s foremost concern. But there are more immediate issues too.

Chinese banks’ lending standards are well below world “best practice”. They give limited consideration to social, environmental and labour protections when awarding financing to projects.




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Tough competition between Chinese companies means they have strong incentives to cut corners and promote projects that recipients do not need. The latter can be saddled with unnecessary infrastructure and potentially unsustainable debt. Furthermore, Chinese central agencies’ capacity to regulate SOEs’ offshore activities is weak, so they cannot be relied upon to manage these problems.

Closer scrutiny of investment proposals is, therefore, clearly necessary. So, too, is tight regulation of project implementation. Australian regulators should also ensure Chinese projects adequately resolve social, environmental and labour concerns.

The fragmented nature of Chinese investments provides opportunities, however, for selective engagement that could serve the wider public interest. This should form part of a clear Australian strategy towards China based on a nuanced analysis of both the threats and opportunities of this multifaceted relationship.


The Conversation


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Shahar Hameiri, Associate Professor of International Politics, The University of Queensland

This article was originally published on The Conversation. Read the original article.